Airline operator Delta Air Lines (DAL) is up 24% over the past year, but the recent market pullback has taken shares down well off their peak. One trader is betting on a rebound in the weeks ahead.
That’s based on the May $60 calls. With 66 days until expiration, 11,787 contracts traded compared to a prior open interest of 185, for a 64-fold rise in volume on the trade. The buyer of the calls paid $1.85 to make the bullish bet.
Delta shares recently traded for about $53, so shares would need to rise by $7, or 13%, for the option to move in-the-money. Shares are now down about 25% from their 52-week high of $69.98.
Operationally, Delta has had a mixed year. Revenues are up by 9%, but earnings growth dropped by nearly 60%. Travel trends remain strong, but growth has slowed there.
On a valuation basis, Delta is still inexpensive, trading at about 7 times forward earnings.
Action to take: Delta shares look oversold in the short-term and could be due for a bounce higher in the coming days. Investors should look to recover about half the recent selloff before taking a rebound trade off the table.
For traders, the May $60 calls are a less costly way to make a similar bet on a rebound. The options can likely see mid-to-high double-digit returns depending on the extent of a move higher over the coming weeks.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.
